Blockchain, the technology that underlies the bitcoin ecosystem, is steadily making advances in the financial industry. Conventionally, the financial world has been seen as ‘slow to the party’ when it comes to innovation, primarily because of its tight regulations. However, it is slowly catching up, with blockchain offering solutions that build on the sector’s inbuilt regard for security and expand the horizon of what’s possible to accomplish.
Since its emergence on the global scene, blockchain has been billed as a failure-tolerant, tamper-proof technology capable of running on connected devices. Its basic principles – a decentralised ledger, immutability, and cryptographic security – combine to make it a robust solution capable of addressing some of the financial industry’s loopholes and inefficiencies. Its application is seen to span various sectors, including retail banking, insurance, payment platforms, stock markets and asset management, among others. Razi Salih, whose experience in fintech spans a decade, has been involved in blockchain-centred projects in the financial sector.
One of the financial sector’s pain-points is cross-border payments, which can sometimes take days to fully complete. Besides the duration, middlemen’s transfer fees can also add to the total cost. Blockchain can provide peer-to-peer or business-to-business payment solutions that could settle within seconds, reducing time and saving between 40 and 80 percent in transaction costs.
Fraud is a big problem for the industry, with cybercriminals and other bad actors keen to take advantage of any system’s weaknesses. While various steps have been taken to secure transactions, blockchain can make the process safer by providing industrial-level security systems to protect customer and banking information. The distributed ledger system, in particular, is useful in establishing trust between financial actors, ensuring every party knows who has access to data and where it is kept.
Faster Stock Market Processes
The global stock market trades stocks worth trillions of dollars, with the market growing by the day. For many players, transaction costs and time are top issues. To counter this, some of the major stock exchanges are exploring the use of blockchain to provide almost instant settlements and an automated compliance process through smart contracts.
By adopting blockchain, the stock market will also be taking a step towards decentralising the process, reducing the influence of market intermediaries. Additionally, the share settlement process could also benefit from increased transparency.
Perhaps standing in the way of quicker blockchain adoption is the speed and willingness of financial regulatory bodies to support the technology. While regulations are a feature of the financial services industry, authorities are examining how blockchain can be introduced into various markets.